During May 2023, the Ombudsman for long-term insurance (OLTI) released a summary of five cases displaying different concerns that are prominent within the industry.
Interpretation of Exclusion Clauses to reject claims – TCF 3 and the importance of being clear
One of the concerns raised by the OLTI was how insurer’s interpret exclusion clauses to reject claims.
The case discussed was a compliant by a beneficiary on a declined death claim. The insurer repudiated the claim based on a pre-existing condition. The complainant was one of the nominated beneficiaries under the policy of which her mother was the policyholder and life insured. The policy was issued on 5 October 2020 with a commencement date of 1 November 2020. Her mother died on 25 December 2020. The insurer based its decision on the fact that the life insured died of a COVID-19-related illness before the policy was underwritten, relying on a clause in the policy “This includes, but is not limited to, the conditions listed in the Pre-existing Conditions Appendix, as well as Covid-19 related symptoms or illness”. There was no evidence that the insured suffered any COVID-19-related symptoms or illness prior to the commencement of the contract.
Adjustors found that interpretation of these types of clauses is critical and if the intention were to exclude COVID-19, it had to be clearly stated as the intention of that clause. The reason for repudiation of this claim was therefore invalid. The insurer agreed to admit the claim and paid the beneficiaries their share of the R300 000 benefit.
This speaks directly to TCF Outcome 3 relating to clear communication. Insurer’s and FSPs need to ensure that policy wordings and their exclusions disclosure processes are clear and unambiguous.
Does your disclosure process ensure informed decision making – was there consensus?
It is important that client’s needs are considered, and the final product sold to them fulfil that need. If a client has been provided with a product that does not meet their expectations, an FSP or insurer may be liable if the query is referred to the Ombuds and found to be valid.
The cases discussed revolved around misleading telesales calls resulting in rejected claims.
In the first case the policy was underwritten by the insurer, providing cover for death due to “non-natural” causes. The insured passed away on 12 May 2020 whereafter the complainant submitted a claim to the insurer. The insurer declined the claim on the basis that the insured’s death was not due to “non-natural” causes. On review of the matter, the telesales call centre agent rushed through the call, was inaudible at times, did not explain information clearly and did not consider disclosures made.
The Ombud felt that in terms of the engagement, there was no meeting of the minds, the insurer argued that because it was a scripted calling terms of industry standards and passed QA by meeting compliance requirements, the sale was concluded appropriately and contractually.
Various factors need to be considered when conducting a sale, ensuring that the client fully understands what product he is purchasing and what the terms and conditions of that product are, is essential. The insurer was instructed to refund all the premiums contributed and to pay an amount of R30 000 in compensation.
The second case deals with a similar situation where the complainant was under the impression that purchased a life policy with the insurer. He later established that he actually accepted an accidental life policy and requested a refund of premiums. When listening to the sales calls, the Ombud concluded that the engagement was rushed and the process that the was followed did not ensure alignment between the clients’ needs and product and the disclosure and provision of information was not sufficient for the purpose of reaching an agreement. In arguing it’s case, the insurer submitted that the insured was informed through the sales script and received policy documentation confirming the same information. In addition, the insurer submitted records of calls with the insured, calls which were made long after the policy was accepted, during which the accidental death cover was also communicated to the insured. However, this information was provided after inception of the policy, and did not assist the insurer’s case. It was found that there was no consensus, and the insurer was ordered to refund the complainant the premiums he had paid.
No hidden or unusual terms that have not been brought to the attention of client
The OLTI argued that where there is an unusual term or condition in a policy, the insurer has a duty to draw attention to it.
In one instance, a customer purchased what she thought was an insurance policy for her uncle, who was in and out of the hospital. The woman filed a claim on the policy after their uncle passed away, but the claim was rejected on the grounds that the insured had purchased an “accidental/natural death and hospital cash benefits product”, rather than a funeral policy.
In considering the complaint, the Ombud referred to other complaints received about this same product and insurer and noted that their records on this product show that the complainant’s assumption that this was a funeral policy is not unique. It was established that the following product features lead to this result:
- the low premium and sum insured;
- the type of cover – multiple lives can be covered;
- there is a waiting period before cover commences for natural causes, a restriction which is commonly used in funeral policies, not life policies;
- the product is aimed at the lower income market, which is the usual target market for funeral policies; and
- the manner of marketing – by means of direct selling, sometimes on the street, by “agents” who provide information, but are not allowed to give advice.
The Ombud also commented on the size and meaning of certain aspects of the agreement on which the insurer relied to reject the claim, stating that the words “permanently residing and financially dependent on you” appeared in small print on the application form.
In the Ombud’s view, the print was too small and did not suffice for the purpose of drawing attention to the unusual terms of the agreement. Even though the insurer was legally permitted to deny the claim, the adjudicators’ meeting felt that the benefit should be given client on the grounds of equality and fairness. The result was that the insurer agreed to admit the claim and pay the benefit of R40 000 to the client.
Equity/Fairness: Insurers may not benefit from its own errors
The Ombud referred to a case where a joint life policy was purchased for spouses from the insurer in 2009. The premium due on 25 June 2017 was not paid on time but was paid on 25 July 2017, which was still within the 31-day grace period. However, due to a technical error the insurer lapsed the policy on 1 August 2017. When the client discovered the policy had lapsed, she attempted numerous times to reinstate the policy. After internal arbitration, the insurer agreed to reinstate and compensate the client due to poor service, however in May 2019 there was a further misunderstanding between the call centre agent and the client. The complainant contends she wanted all cover on both lives reinstated, however, only the husband’s cover was reinstated.
After listening to the reinstatement telephone call, the adjudicator’s view was that the insurer’s reliance thereon was unfair to assume that the client only requested her husband’s policy needed to be reinstated. The client clearly stated she wanted all cover to be reinstated. A final determination was issued, and the insurer was instructed to reinstate all benefits, without underwriting, and that the outstanding premiums should be written off in lieu of further compensation for distress and inconvenience caused by the insurer’s errors.
The Ombuds referred to the equitable doctrine based on the ruling that a party cannot take advantage of his own default and error. Fairness needs to prevail when an insurer or FSP deals with clients irrespective of the circumstances that arose.